OECD Consults The Public On Revising Transfer Pricing Guideline

OECD indicated the intention to commerce two new projects to revise the guidance in Chapter IV (administrative approaches) and Chapter VII (intra-group services) of the Transfer Pricing Guidelines. Interested parties are invited to send their comments no later than June 20, 2018.

Chapter IV – Disputes Resolution

The revision aims at minimising transfer pricing disputes and helping to resolve them, increasing tax certainty for taxpayers and preventing double taxation. Future work could be done to update the guidance in Chapter IV in relation to examination practices and to mechanisms to prevent and resolve tax disputes, and to potentially include guidance or risk assessment. Public comments are welcomed especially on the following issues:

  • Additional aspects or mechanisms to minimise the risk of transfer pricing disputes to be included as part of the guidance on transfer pricing compliance practices (e.g. co-operative compliance, risk assessment tax examination practices);
  • Additional guidance that would be useful in relation to corresponding and/or secondary adjustments to minimise the risk of double taxation;
  • Additional guidance that could be provided on advance pricing arrangements;
  • Any other mechanisms or issues relevant to the administration of transfer pricing and/or to prevention and resolution of transfer pricing disputes for which guidance to be developed as part of the revision of Chapter IV of the TPG.

Chapter VII –Intra-Group Services

In 2015, as part of the Base Erosion and Profit Shifting (“BEPS”) Project, Chapter VII was updated to incorporate a simplified approach to determine the arm’s length charges for low value-adding intra-group services (“LVAIGS”). Apart from this, the chapter has not been reviewed to incorporate the guidance developed under BEPS Actions 8-10. Accordingly, the future revision of Chapter VII could be focused on aligning the guidance with Chapter I, in particular, but also Chapters VI and VIII, as well as considering whether and, if so how, to incorporate the ongoing work on the use of profit split methods and financial transactions. The concern related to the guidance in Chapter VII is its practical application, rather than potential theoretical disagreements on the underlying principles. Views of interested parties are welcomed in practical challenges in particular:

  • Demonstrating that a service has been rendered and/or that the service rendered provides benefits to the recipient;
  • Drawing a distinction between: (i) activities which do or do not benefit the local affiliates; (ii) benefits that purely arise from group membership and those that arise from a deliberate concerted action; and (iii) shareholder activities and stewardship activities;
  • dentifying in practice duplicated activities;
  • Finding an appropriate allocation key for charging intra-group services;
  • Determining the costs that should or should not be included in the cost base of the remuneration for the provision of services between associated enterprises; and,
  • Assessing the arm’s length conditions for services provided in connection with the use of intangibles; services that are highly integrated with the value creation of the MNE group; and/or involve significant risks.

Comments in excess of ten pages should attach an executive summary limited to two pages, which should be all in word format.

Sources: OECD

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